2021 Budget Update
18 May 2021
The Liberal Party has delivered a Budget that we would expect from the Labor Party. Big spending on social policies such as Aged Care, NDIS and Mental Health.
Josh has claimed Australia’s Covid relative success as his own and the Budget has come in much better than forecasts. They have made their forecasts again, but they will be wrong as well, because Economics makes fools of forecasters, given the limitless complexity and interactions that make up an economy.
We did very well with the virus and our stimulus protected most, so they can claim some success. The eye-popping iron ore price might be harder to link back to any policy actions by the Treasurer.
We will focus on the super changes and they are all good.
Some of the key Budget announcements that are of particular interest include:
- The removal of the work test for non-concessional and salary sacrifice contributions. So even if you have retired, you can continue making after tax contributions all the way to age 75. This will allow someone to build their super balance to $1,700,000 (per member), who might not have been able to before, as they get many extra years to contribute. Once you have $1,700,000 in super (from 1 July 2021, currently $1,600,000) you cannot make after tax contributions to super.
- A reduction in the minimum age requirement for downsizer contributions from 65 to 60, will allow more people selling their home to put some extra funds into super that are not counted against any caps.
- An increase in the amount of super savings available to first home buyers. Worth using if you are buying, but most of these policies push up house prices.
- Making life easier for people working overseas who want to contribute to their Self-Managed Super Fund.
The legislated increases to superannuation guarantee were not amended in the Budget. Therefore, rate of superannuation guarantee will increase to 10% from 1 July 2021, as previously legislated.
In addition, the Government did not announce an extension of the halving of the account based pension minimums. As a result, the standard minimum drawdown requirements will apply from 1 July 2021.
Also, keep in mind that the announcements made in the Budget remain proposals at this stage. All of the proposals mentioned must be passed by Parliament before they become law.
More details on superannuation changes are listed below. Your adviser will know how these strategies impact you and will be discussing this as part of your ongoing advice, but if you would like some information sooner, please do not hesitate to contact us.
Repealing the work test for non-concessional contributions and salary sacrifice contributions for people aged 67 to 74
From 1 July, individuals aged 67 to 74 are eligible to make or receive non-concessional (including the bring-forward rule) or salary sacrifice superannuation contributions without being subject to the work test.
Changing the eligibility age for downsizer contributions to 60
The government has announced it intends to reduce the eligibility age to make a downsizer contribution from 65 to 60 years of age.
The downsizer contribution rules allow people to make a one-off contribution to super of up to $300,000 from the proceeds of selling their home they have held for at least 10 years. Under the rules, both members of a couple can make downsizer contributions for the same home and the contributions do not count towards a members non-concessional contribution cap.
First Home Super Saver Scheme – increasing the maximum releasable amount to $50,000
The Government has announced it will increase the maximum releasable amount for the First Home Super Saver Scheme (FHSSS) from $30,000 to $50,000.
Under the existing FHSSS rules, an eligible person can only apply to have up to $30,000 of their eligible (voluntary) contributions, plus a deemed earnings amount, released from super to purchase their first home.
This measure is proposed to have effect from the start of the first financial year after the enabling legislation receives Royal Assent. The Government has stated that it expects this to occur prior to 1 July 2022.
Relaxing residence requirements for SMSF’s
The Government plans to relax the residency requirements for SMSFs by extending the central management and control test from 2 to 5 years and removing the active member test.
Under current rules, SMSF trustees living overseas who intend to return to Australia at some point can be away for a period of up to two years and the fund will still meet the central management and control test. Under the proposal, the trustee will be able to be away for up to five years and still meet the test.
Further, the active member test will be abolished. Under this test, if the fund had members that were ‘active’ by making contributions or rollovers into the fund, the residency status of the fund could be jeopardised. This means that members who are overseas for a period of time often cannot make contributions to their SMSF or SAF. In contrast, a non-resident can contribute to large APRA and industry funds without putting the fund’s residency status at risk.
Abolishing the active member test simplifies the rules and ensures that members and trustees who are temporarily overseas can continue to make contributions to their SMSF or SAF without jeopardising the fund’s complying status.
How can we help?
If you have any questions or would like further clarification in regards to any of the above measures outlined in the 2021-22 Federal Budget, please feel free to give me a call to arrange a time to meet so that we can discuss your particular situation in more detail.